When I decided to attend the Lagos Business School (LBS), it was an opportunity to gain experience, meet new people and expand my business as whole. However, nothing prepared me for what I have encountered thus far. The rigors associated with the learning process, the extended hours of study and most interesting, the difficulty of dealing with people of different ethnicities and different views.
Regardless of these, I believe I have been exposed to a level of learning comparable to no other. One of such new learning fields is the course titled – corporate financial accounting or CFA for short – which is facilitated by Professor. Akintola Owolabi. This course covers the application of accounting in our daily business lives and goes beyond the simple (though complex in some cases) of balancing accounts and entering journals.
As an executive with a core engineering background, it was going to be difficult to understand accounting conventions after over 12 years with no experience in the finance sector (whether banking, insurance etc.). But, upon meeting the facilitator who himself has a strong engineering background, precisely electrical and electronics engineering, it seemed the exceedingly difficult was about to become simplified: and so, it was.
Professor Akintola Owolabi took us all – whether chattered or non-chattered, accounting background or non-accounting background – by the arm and led us piece by piece towards the end goal of understanding and appreciating the basics of accounting as it relates to the corporate world. This no doubt had a soothing effect and helped douse any premeditated tensions regarding the way the course would turn out.
First, we were introduced to the three key drivers of making investments which are;
- Returns – What would my investment give back to me
- Risk – Refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision.
- Time frame – How long will it take my investment to yield returns.
Also, we discussed that are two major types of accounting conventions used globally, these are;
- IFRS – International Financial recording Standards
- GAAP – Generally Accepted Accounting Principle
These two conventions are similar in their application but majorly differ in the language used to define certain parameters. The United States use GAAP while most other parts of the world report using the IFRS.
Next, we discussed the types of financial statements used in accounting, and this was done relative to both GAAP and IFRS. These statements are.
- Statement of Financial Position (GAAP – Balance Sheet)
- Statement of Profit or Loss (GAAP – Income Statement)
- Statement of Cash Flows (Same for GAAP)
- Statement of Change in Equity (GAAP – Statement of Shareholders Equity)
These four are the primary financial statement under both conventions but an addition though this is the Notes to Accounts. The notes to accounts detail and comment on the information presented in the balance sheet or statement of financial position, profit, or loss statement or income statement and cash flow stamen. Notes to the accounts reflect the accounting principles and the facts that can have a significant impact on the judgement of the reader of accounting information.
The next blog on CFA will shed more light on these statements and their all-encompassing application in the finance world.